UK watchdog opposes compulsory accountant switching

March 19, 2013|Reuters

LONDON, March 19 (Reuters) - Forcing companies to switchaccountants to boost competition in a market dominated by the"Big Four" could damage the quality of financial reports,Britain's audit regulator said on Tuesday.

Last month the Competition Commission proposed a number ofinitiatives to increase choice of accountant.

One of the proposals, to force companies to change theiraccountant every few years, could have an adverse effect onaudit quality and artificially constrain businesses' choice ofaudit firm, the Financial Reporting Council said in a statement.

The FRC's position will be welcomed by the Big Four - PwC,KPMG, Ernst & Young and Deloitte - which check the books ofnearly all blue chip companies across the world and which opposemandatory rules.

The watchdog, which can fine auditors that breach its rules,has just introduced a requirement for firms to consider changingtheir accountant at least every decade, but on a voluntarybasis, explaining why if no change is made.

But the Competition Commission has also proposed compulsorytendering by companies for auditors every few years to shake upwhat it calls a "static" market so that smaller auditors outsidethe Big Four have a chance to get work with blue chip clients.

The FRC said its voluntary "comply or explain" approach moreappropriately recognised the role of investors in key decisionson how a company is run.

FRC Chief Executive Stephen Haddrill said the watchdog's newvoluntary rule on tendering for auditors and on giving auditcommittees at companies more responsibilities were making adifference.

"We are keen to discuss with the (Competition) Commissionthe case for further steps once there has been sufficient timefor these changes to take full effect," Haddrill said.

The final outcome will depend on what happens at EuropeanUnion level where a draft law which proposes mandatoryaccountant switching is being scrutinised.

If approved, Britain like other EU member states, would haveto comply whatever UK regulators decided in the meantime.